Behind an Estimated $30 Trillion Drain on Banks, a Lot of Hypotheticals

NY Times ^ | 10-29-2012 | PETER EAVIS

[ExxonPatrolUs]

Imagine a situation in which the world’s banks have to find as much as $30 trillion to comply with just one new regulation. That might be something of a stretch, given that the gross domestic product of the United States is only $15.8 trillion, and the world’s 10 largest banks hold only $25 trillion of assets. Yet a banking industry group recently looked into a new rule and sketched out a possibility in which banks were forced to come up with as much as $30 trillion in cash. The potential cash call is outlined in a letter the International Swaps and Derivatives Association sent in September to regulators. It is the latest eye-popping number that lobbying firms and banks have produced to support their view that many new regulations will be enormously expensive — and the big, scary numbers seem to be gaining traction. The gargantuan sum relates to the market for derivatives, which are financial contracts that banks and investors use to bet on interest rates, stock prices, creditworthiness of corporations and the like. Derivatives played a central role in the 2008 financial crisis. The market for many contracts was opaque, which stoked panic when certain players started to falter.

[uncommonsense]

Maybe the banks don't need to have $380 trillion of derivatives in their portfolio...

[Twotone]

“The gargantuan sum relates to the market for derivatives, which are financial contracts that banks and investors use to bet on interest rates, stock prices, creditworthiness of corporations and the like.”

Wouldn’t it make more sense to just get rid of this ‘market’?

[Wolfie]

Better to them run wild and bail them out later, you betcha.

[dirtboy]

Give the banks two options - keep the derivatives and add the reserves, or unwind most of them and they won't need to add the reserves.

Plan C and D are probably what the banks are counting on instead - more QE and federal bailouts.

[Wolfie]

I guess we’re just supposed to let the clown juggle running chainsaws in a crowded room and deal with the carnage if it all goes horribly wrong.

What they are doing with these “financial instruments” is dangerous to the rest of us, and should be banned. Kind of like running the local meth dealer out of business, no?

[Max in Utah]

...derivatives, which are financial contracts that banks and investors use to bet on interest rates, stock prices, creditworthiness of corporations and the like.

Would the term "casino economy" apply to what they're doing with these "bets?"

[Max in Utah]

...derivatives, which are financial contracts that banks and investors use to bet on interest rates, stock prices, creditworthiness of corporations and the like.

Would the term "casino economy" apply to what they're doing with these "bets?"

[Graewoulf]

Obamanation Communism File.